Practice Examination Questions for Real Estate Appraisers

Practice Examination Questions for Real Estate Appraisers Flashcards Comments in uspap areas binding as the standard itself.Competency Rule disclosureAppraiser does not immediately have to disclose... only when it becomes apparent that lack of competency is true.Appraiser can gain competency by consulting with "expert" and not discloseAs long as assignment can be completed and results are credible.What is the market value (VO) of a property that has an NOI of $56,000 and a land value (VL) of $150,000? The RL is 7%, and the RB is 9%. Round your answer to the nearest

$50,000.

56,000 (IO) (150,000 (VL) x = 0.07 (RL)) = 45,500

(IB)45,500 / 0.09 (RB) = 505,555 (VB)505,555 (VB) +

150,000 (VL) = 655,555 (VO)

extraction method of site valuationEstimating and subtracting the value of the improvements from the sale prices of comparable properties

Cost Approach Methods:Cost index trendingThe

comparative-unit methodThe unit-in-place method Cost index trending - cost of construction estimate on the actual cost of construction at a prior date.The comparative-unit method - cost per square foot estimate from a cost serviceThe unit-in-place method - cost of construction of various sections of a building Highest and Best Useo Legally permissibleo Physically possibleo Financially feasibleo Maximally productive The overall capitalization rate for the fee simple interest is 10%, the leased fee capitalization rate is 8.5%, market net operating income is $20,000, and contract net operating income is $12,500. What is the implied leasehold capitalization rate?

20.000/.10 = 200,000 fee simple value12,500/.085 = 147,000 leased fee value20,000-12,500 = 7,500 income advantage to tenant (leasehold)200,000-147,000 = 53,000 leasehold value7,500/53,000 = .1415 What type of risk affect operating income due to shifts in demand and/ or supply?A) ManagementB) FinancialC) MarketD) Capital market

• Market

Cash Equivalent Sale Price=Sale Price - Seller Paid Concessions when is the scope of rule accepted ?what an appraiser's peers' actions would be in performing the same or similar assignment.Calculate the leased fee value of the real estate investment

based on the following data: The property is leased for 10

years at $55,000 per year (net), and the property value is expected to decline by 10% over the 10 years. The required yield rate is 11% 10 n11i1 CHS PV0.9 FVSolve for PMT = 0.11598 (capitalization rate)55,000 / 0.115980 = 474,219 Value to Buyers vs SellerMarket value - buyervalue in use - seller.

AN EIGHT YEAR OLD HOME JUST SOLD FOR

$62,000.00. LAND IS VALUED AT $12,000.00 AND

REPLACEMENT COST IS $60,000.00. BASED ON THIS

INFORMATION, WHAT IS THE ANNUAL RATE OF

DEPRECIATION?

62,000-12,000=50,000 improvement value60,000-50,000=10,000 difference in cost and value is depreciation10,000/8=1,250 annual amount of depreciation1,250/60,000=.0208

A 10 year old duck farm with a capacity of 50,000 ducks sold recently for $400,000. The cost to replace the improvements is $4.50 per duck. The land is 40 acres valued at $7,000 per acre. What is the economic life of the improvements rounded to the nearest year?40 x 7,000 = 280,000 land value400,000 - 280,000 = 120,000 improvement value4.50 x 50,000 = 225,000 replacement cost225,000 - 120,000 = 105,000 depreciation105,000/10 = 10,500 annual depreciation225,000/10,500 = 21.42 yearsEconomic life is based on replacement cost Which of the following demand-side economic factors creates value?A) Desire and utilityB) Scarcity and effective purchasing powerC) Scarcity and utilityD) Desire and effective purchasing power

• Desire and effective purchasing powerSupply-side =

Scarcity and Utility What type of assignment should be employed to determine general conditions of supply, demand and pricing for a specific property type?A) Marketability analysisB) Feasibility analysisC) Market analysisD) Highest and best use analysis

• Market analysis

CAM charges are typical with which properties? Shopping centers and industrial parks

WHAT IS THE INDICATED CAPITALIZATION RATE FOR

A PROPERTY THAT HAS AN ANNUAL GROSS INCOME

MULTIPLIER OF 8.0 AND AN OPERATING EXPENSE

RATIO OF 40 PERCENT?

1 - .40 = .60.60 / 8 = .075

The market value of a property is $2,300,000 at stabilized occupancy. The direct building cost is $1,500,000. The indirect costs are $200,000 and the land costs are $125,000. What is the indicated entrepreneurial profit?

$475,000

THE LOCATION OF THE SUBJECT PROPERTY IS 10

PERCENT INFERIOR TO THAT OF THE COMPARABLE.

MARKET CONDITIONS INDICATE AN INCREASE IN

SALES PRICES OF 1/2 PERCENT PER MONTH FOR

THE PAST 12 MONTHS SINCE THE COMPARABLE

SOLD. THE NET ADJUSTMENT TO THE COMPARABLE

WOULD BE:

-4.6%.005 X 12 = .061 + .06 = 1.061.06 X .10 = .1061.06 -

.106 = .9541 - .954 = .046The sequence of adjustments must be followed. Make adjustments to bring the sale to the subject's current market; at that point (market adjusted selling price) adjustments are made from that figure.allocation method of site valuationDeveloping a land-to-property value ratio in areas where the land and building values are known, and then applying that ratio to the subject's market Cost ApproachCost of improvements (including entrepreneurial profit)Less depreciationPlus Land Value A property has an NOI of $150,000 per year. The value of the land (VL) is $550,000. The land capitalization rate (RL) is 9.75%, and the building capitalization rate (RB) is 12.25%. What is the property value to the nearest

$100,000?

550,000 × 0.0975 = 53,625150,000 53,625 =

96,37596,375 / 0.1225 = 786,735550,000 + 786,735 =

1,336,735

BracketingSales comparison:determining a probable range of values

between the comparables with the highest/lowest adjustments

Number of households effectspurchasing power The subject property is a 5,000 sf single tenant office building that is currently leased for $9 per square foot per year with three years remaining on the lease. The current lease is assignable. Typical vacancy loss for this type of property is 10% annually. Owner operating expenses are typically found to be 25% of effective gross income. Market rent rates are $12 per square foot per year. Overall capitalization rates are 9.5%. A sale of a leasehold interest sold for $29,000 with a net leasehold income of $12,000 per year with three years remaining. What is the value of the leasehold estate, rounded to the nearest $1,000?The difference in rent between market rent and contract rent is attributed to the leasehold estate.12 - 9 = 3/sf3 x 5,000 = 15,00012,000/29,000 = .4137 cap rate for the leasehold estate 15,000/.4137 = 36,258 The subject property has a projected level income of $30,000 for the next five years. The property value is expected to increase by 10% over the projection period of five years. The yield rate is 8%. What is the market value of the property? Round your answer to the nearest $50,000.

• n8 i1 CHS PV1.10 FVSolve for PMT =

0.062954(RO)30,000 / 0.062954 = 476,535.74

age-life methodthe actual age of the component divided by the estimated total useful life.e.g., The roof on a house is 8 years old and has a useful life of 20 years. The depreciation of this item is 40% based on the calculation of 8 years / 20 years.The subject property is the leasehold interest in a parcel of land that was leased eight years ago for 75 years at $1,000 per month on a net basis. It was vacant land at the time of the lease. Susan, the tenant, built an office building on that vacant land. After construction, she leased it out to a tenant for $110,000 per year for 20 years on a net basis. Susan pays the land lease out of the $110,000 per year income.The typical holding period for a leasehold interest like this is 20 years. The terminal capitalization rate for the leasehold interest is 14%. What is the value of the leasehold interest if the discount rate for the leasehold interest is 12%?20 n12 i98,000 PMT(98,000 / 0.14 = 700,000) FVSolve for

PV = $804,572

The building capitalization rate for a commercial building is 11%. The rate of land appreciation is 3% and the yield rate is 7%. What is the useful life of the building?The building capitaliztion rate includes return on investment (yield) as well as return of investment (capital recapture otherwise known as depreciation). The difference between the capitaliztion rate and yield rate represents the annual rate of depreciation.11 - 7 = 4So, if the building depreicates 4% each year, it will be totally depreciated in 25 years.100/4 = 25 What is the overall capitalization rate (RO) for a property that has a PGI of $45,000, an EGI of $41,500, and an OER of 33%? The net income multiplier is 16.55.The reciprocal of the net income multiplier is the

capitalization rate:1 / 16.55 = 0.0604

Who determines scope of work?Appraiser, can be discussed with client.